Mr.
Jenkin: Let us suppose that we are involved in an Anglo-US
project such as the joint strike fighter or perhaps something that is
less obviously a partnership agreement, but which would involve
American transfer of sensitive information. Would it be possible for
the European Court of Justice to insist that it is not in the
interest of our essential security that we should
fail to disclose that information as part of a European tendering
process? Is there some protection for sensitive American information,
so that it can somehow be exempted from the purview of the European
Court of
Justice?
Mr.
Davies: As the hon. Gentleman no doubt knows, Ministers
are not supposed to give legal advice. Let me give a political answer
to that highly hypothetical and theoretical question. I cannot
conceive a one in a billion or one in 10 billion chance of such an
eventuality. If anything is essential to our national security, it is
indeed that very important relationship with the United States on
procurement of the joint strike fighter. Everyone knows about that, and
it is a good example of something that would—if anything
would—be essential. Thus I cannot conceive of the danger that
the hon. Gentleman suggests. I do not believe for a moment that anyone
in the United States supposes that there is such a danger, nor can I
believe that anyone in the European Union—which I know the hon.
Gentleman does not like—could possibly have such a perception of
what might eventually
ensue.
Mr.
Jenkin: I am grateful for that fulsome assurance, but the
Minister admits that there is a one in a million chance, because in the
end the European Court of Justice will decide, not him or anyone on
this side of the channel, so it is not an assurance that he can truly
give, is
it?
Mr.
Davies: The hon. Gentleman must not distort what I said.
When I said there is not a one in 10 billion chance, I meant that there
is not a chance up to at least one in 10 billion, so he cannot say that
I acknowledged that there is a one in a million chance. That is pure
distortion of my response, and I must insist that it is properly
corrected in
Hansard.
Mr.
Burns: As the Minister knows, the Government believe that
the directive should not explicitly authorise or outlaw offsets. What
is the
position?
Mr.
Davies: The position on offsets is that we prefer to leave
the matter unmentioned in the directive. We see no reason to mention it
and think that there are considerable dangers in doing so. We may want
flexibility in that area. We do not want to be pressed into some kind
of standardised Procrustean model for an offset arrangement. Our
preference is to leave the matter out. I hope that that is indeed how
the directive will finally emerge from the co-decision
procedure.
Mr.
Burns: But of course, the Minister knows that the
Government also want continuing work by the European Defence Agency on
the matter. What sort of
work?
Mr.
Davies: The European Defence Agency is a useful body,
although it may be possible to exaggerate its practical importance in
current circumstances. We think that it is usefully employed in many
ways, one of which is in looking at the impact of a directive of the
kind that we are considering. We hope that the European Defence
Agency’s conclusions on the matter will be helpful to our
position.
Mr.
Burns: The noble Baroness Taylor of Bolton, in her letter,
did not say that it is useful to look at all issues. She said that she
expects the European Defence Agency to carry on “ongoing
work” on offsets. What sort of work, and to achieve
what?
Mr.
Davies: Since the offsets are of great interest to the
hon. Gentleman, let me give a slightly more detailed
response.
Mr.
Burns: Just answer the
question.
Mr.
Davies: The hon. Gentleman will get the answer, but he
will get it in the context in which I think he needs it. There is a
wide range of views among member states on the matter, ranging from
Germany wanting a directive to outlaw offsets, through to Greece and
the Netherlands, which feel that offsets are a necessary evil to enable
market penetration from smaller member states. The French position, in
the presidency, is to avoid opening up difficult debates at this late
stage that could risk agreement on the directive being reached by
December. The UK policy view is that offsets are a market-distorting
practice that should be dispensed with. The UK industry view is that if
EU member states are prohibited from offering them, but the United
States and other competitors can still include them in their bids for
contracts, EU industry will be disadvantaged. However, offsets are a
global phenomenon and other practices also impact on the effectiveness
of the market, so a holistic approach needs to be taken. It follows
that it is unlikely that a text on offsets will feature and we are
happy with that
outcome.
Mr.
Burns: Baroness Taylor mentioned “ongoing
work” on offsets in the EDA. What work is that,
precisely?
Mr.
Davies: I have not seen any particular report on the work
that the EDA is doing. I cannot predict what the outcome of its work
will be. We shall look at its work with great interest. I have no
reason to suppose that anything it says will change the position, which
is just as I have outlined
it.
Mr.
Burns: May I ask an easier question? Baroness Taylor says
that “ongoing work” is taking place on offsets. What is
that ongoing
work?
Mr.
Davies: The hon. Gentleman is asking me questions that I
am not competent—and should not be competent—to
answer.
Mr.
Burns: But you are the
Minister.
Mr.
Davies: If there was work being done by the British
Government, I would be the right person to ask about it. However, the
hon. Gentleman asks about work being undertaken by the European Defence
Agency. I would not expect member states to be given any report on that
work until it was concluded. If it were sending out an interim report,
we would no doubt see it, but I have not seen one. If there were such
an interim report I would be happy for the hon. Gentleman to ask me, in
the usual way, to give an account of what it
said.
Mr.
Hands: May I take the Minister back to something that his
boss said last month about wanting to deepen EU co-operation through
the creation of an EU fighting force? Will he outline some of the
benefits and disbenefits of the proposal for greater EU co-operation on
an operational
basis?
Mr.
Davies: My right hon. Friend said nothing about creating
an EU fighting force. If the hon. Gentleman reads the existing
treaties—the treaty of Amsterdam or the prospective Lisbon
treaty—he will see that there is no reference to any such thing.
Of course, we are all committed to sensible, productive, pragmatically
attractive and fruitful co-operation with our EU allies, whether in the
area of procurement or in an operational context. The directive merely
deals with procurement—the rules for net procurement by national
member states or their Governments—of defence and related
equipment.
Dr.
Murrison: On a different subject, may I bring the Minister
on to subcontracting, which is of particular importance to the United
Kingdom, given the sheer number of small and medium-sized enterprises
that we have, which knock spots off Germany, France and Italy combined?
I hope the Minister is particularly mindful of their needs, especially
in the current
climate. Subcontracting
exercised the European Scrutiny Committee, which asked us to consider
the implications of the directive on subcontracting. Articles 13 and 38
would place burdens on tenderers in stipulating their use of
subcontractors. The EU presidency wants further provisions allowing
contracting authorities to require prime contractors to subcontract up
to 30 per cent. of the main contract. That would reduce the ability of
prime contractors to mange and it is difficult to see how it would be
helpful to the UK. Before I put my question, may I point out that the
noble Baroness Taylor, in her letter of 21 October, which is in the
bundle, admits that the articles as drafted would not bring benefits to
SMEs? She states that she is willing to
“tactically...concede” to other member states. What
is the Minister’s attitude towards those articles, and is he
willing to concede them tactically, to the disadvantage of British
SMEs?
Mr.
Davies: I am not willing to concede anything that is of
disadvantage to British SMEs. If I may respectfully say so, I think the
hon. Gentleman has misunderstood his own brief, because he started by
talking about imposing burdens and then correctly read out a quotation
that used the word “enabling”. This is an enabling
proposal. It will enable lead contractors to tender for subcontracts,
not compel them to do so. It is permissive, not restrictive, and it
would not be logical or sensible for us to be particularly concerned
about
it.
Dr.
Murrison: So to what extent does the Minister
anticipate prime contractors acting in a way that I suppose the
Commission would see as perverse, by choosing sub-contractors in the
country with which they have contracted? One imagines that such an
artifice might be positively attractive to some, and possibly even to
the UK, given the number of SMEs that it
contains.
Mr.
Davies: I repeat that this is an enabling measure. I
cannot predict the extent to which individual member states or their
prime contractors might wish to take advantage of
it.
Dr.
Murrison: Let me get this clear. The Minister says that he
supports an enabling measure that will give prime contractors
permission to let up to 30 per cent. of their main contract to
subcontractors. Is that the burden of what he is
saying?
Mr.
Davies: I have said three times to the hon. Gentleman that
this is an enabling measure, which is permissive, not prescriptive. I
suggest that he reread the text. Of course, subcontracts have to be
competed for openly. The same rules apply to subcontracts as to other
defence contracts under the
directive.
Mr.
Hands: May I take the Minister back to the comment in his
opening statement that one Mediterranean country had its provisions on
firemen’s hats changed, or something like that? Which country
was it, and was it forced to make that change as a result of EU
action?
Mr.
Davies: I do know which country was involved, and it was
firemen’s hats, but there was no case before the European court,
for the reason that I explained earlier. No one has been found guilty
of cheating, abuse or a breach of article 296. It is difficult for me
to accuse someone of having been in breach of the article when there
has been no legal judgment. The hon. Gentleman is frowning, but he will
be familiar with that convention, which exists throughout civilised
society. We do not say that someone is guilty of an abuse, or of
something that could result in a court judgment, if there has not been
such a judgment. There has not, for the reason that I have outlined. By
its own admission, until 2006 the Commission was not policing the
matter thoroughly, and people were getting away with some pretty
extraordinary anomalies. The firemen’s hats and the T-shirts
were just two examples of that. If he does not mind, I shall not
pillory or name and shame the country
involved—
Mr.
Burns: Then why mention it in the first
place?
Mr.
Davies: The hon. Gentleman asks a question from a
sedentary position. I suppose that he is allowed to do so, and if I am
allowed to answer, I will do so
happily. I
mentioned the case because it illustrated the regime that existed
between 1957 and 2006, when article 296 was not being policed
effectively by the Commission. By definition the article was not being
examined by the European Court of Justice, as no one was bringing cases
of abuses of it. Against the background of what one might call relative
anarchy, a number of precedents were produced that other member states
might have followed, thinking that they were what the practice of the
market had become under the original text of the treaty. That was
exactly the evil that the Commission was addressing by bringing forward
the directive. I hope that the hon. Member for Hammersmith and Fulham,
and the hon. Member for West Chelmsford, who asked me the question from
a sedentary position, are both satisfied by that
answer.
Mr.
Hands: I am not really satisfied by that answer. If the
Minister uses an example, it would be worth knowing which country is
involved. If that was the regime for
those 50 years, it would also seem relevant to know whether that
provision has been abolished since 2006 in relation to that member
state.
Mr.
Davies: As the hon. Gentleman is concerned about this
matter I recommend that he look at the Commission’s
communication of 2006. It is clear from that communication that if such
an issue arose today, if some member state tried to procure
firemen’s hats—to take that example, but there could be
other equally silly examples and I am sure that there are many other
equally glaring abuses—the Commission would challenge it.
Therefore, the rules would be enforced. This directive has the purpose,
which I think it achieves, of creating a new, explicit framework that
is separate from the public procurement directive and the original
treaty and deals in much greater detail with all these issues and the
various eventualities that can
ensue.
Mr.
Hands: I am still not sure that I fully understand. Is the
Minister saying that all contracts prior to 2006 are effectively
grandfathered so that nobody could challenge any of the
provisions to a contract that has already been made in relation to
firemen’s hats or whatever it might
be?
Mr.
Davies: No, I am not saying that. Let me try to help the
hon. Gentleman. It is quite normal that prosecuting authorities set out
from time to time the principles on which they will operate. They may
well decide to take a stricter view of enforcement in a particular area
than they have in practice done before. It does not mean that anybody
has been given legal immunity for actions which pre-date the new
guidance. Under the analogy that I put forward, the Commission’s
communications can be looked at as a sort of prosecuting
authority’s guidance. It must be perfectly open, legally, to the
Commission to pursue some really egregious abuses that come to its
attention now and which pre-date 2006. But that is a matter for the
Commission. It would not be for us to take the initiative
there.
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